GOLD PRICE TALKING POINTS

The price of gold holds steady following the kneejerk reaction to the US Non-Farm Payrolls (NFP) report, but current market conditions may keep the precious metal afloat as bullion trades to a fresh yearly high ($1789) in July.

GOLD PRICE RETAINS BULLISH BEHAVIOR IN JULY TO MARK FRESH 2020 HIGH
The price of gold has traded to fresh yearly highs during every single month so far in 2020, and the bullish behavior may persist throughout July as the reversal from the May low ($1670) pushes the Relative Strength Index (RSI) towards overbought territory.

Looking ahead, the update to the US NFP report may influence the monetary policy outlook as the economy adds 4.8 million jobs in June versus forecasts for a 3.0 million print, and the ongoing improvement in the labor market is likely to keep the Federal Reserve on the sidelines as the update to the Summary of Economic Projections (SEP) show “a general expectation of an economic recovery beginning in the second half of this year.”

At the same time, the Federal Open Market Committee (FOMC) Minutes suggest the central bank will gradually alter the forward guidance for monetary policy as “various participants noted that the economy is likely to need support from highly accommodative monetary policy for some time and that it will be important in coming months for the Committee to provide greater clarity regarding the likely path of the federal funds rate and asset purchases.”

The FOMC Minutes revealed that “many participants remarked that, as long as the Committee’s forward guidance remained credible on its own, it was not clear that there would be a need for the Committee to reinforce its forward guidance with the adoption of a YCT (yield caps or targets) policy,” and it seems as though the central bank is in no rush to deploy more unconventional tools as “participants generally indicated support for outcome-based forward guidance.”

The statement suggests the FOMC will carry out a wait-and-see approach as the central bank vows to “to increase its holdings of Treasury securities and agency MBS (Mortgage-Backed Security) and agency CMBS (Commercial Mortgage-Backed Security) at least at the current pace,” and it seems as though Chairman Jerome Powell and Co. will rely on US lawmakers to further support the economy as Fed officials warn that “fiscal support for households, businesses, and state and local governments might prove to be insufficient.”

In turn, the FOMC may stick to the same script at the next interest rate decision on July 29 as the central bank remains “committed to using its full range of tools to support the U.S. economy in this challenging time,” and the recent contraction in the Federal Reserve’s balance sheet may prove to be short lived as the reduction is largely driven by a decline in liquidity swaps.

As a result, the low interest rate environment along with the ballooning central bank balance sheets may continue to act as a backstop for the price of gold as market participants look for an alternative to fiat-currencies.

The opening range for 2020 instilled a constructive outlook for the price of gold as the precious metal cleared the 2019 high ($1557), with the Relative Strength Index (RSI) pushing into overbought territory during the same period.

A similar scenario materialized in February, with the price of gold marking the monthly low ($1548) during the first full week, while the RSI broke out of the bearish formation from earlier this year to push back into overbought territory.

However, the monthly opening range for March as less relevant amid the pickup in volatility, with the decline from the monthly high ($1704) leading to a break of the January low ($1517).

Nevertheless, the reaction to the former-resistance zone around $1450 (38.2% retracement) to $1452 (100% expansion) instilled a constructive outlook for bullion especially as the RSI reversed course ahead of oversold territory and broke out of the bearish formation from February.

In turn, gold cleared the March high ($1704) to tag a new yearly high ($1748) in April, with the bullish behavior also taking shape in May as the precious metal traded to a fresh 2020 high ($1765).

The bullish behavior carried into June as the reversal from the May low ($1670) produced a break of the monthly opening range and pushed the price of bullion to a fresh 2020 high ($1786), with the trend also taking shape in July as the precious metal tags a fresh yearly high ($1789).

The move above the May high ($1765) brings the 2012 high ($1796) back on the radar, but need a break/close above the $1786 (38.2% expansion) region to open up the topside hurdles, with the next area of interest coming in around $1803, the November 2011 high, followed by the $1822 (50% expansion) region.

Will keep a close eye on the RSI as it appears to be stalling ahead of overbought territory, but a break above 70 is likely to be accompanied by higher gold prices as the bullish momentum gathers pace.